Impact of Trade Liberalization

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Introduction

Trade liberalization is the opening of domestic market to the international world. It is the establishment of free market across the globe where by all players across the world are accorded the freedom to carry out business transaction in any country.

The trade liberalization is opposed to the concept where countries protect their domestic industries from international competition. The establishment of trade liberalization implies the abolition of regulations that can in one way or another limit any form international trade that is viewed to be legal under international law.

This paper seeks to explore the subject of trade liberalization. The paper will discuss impacts of trade liberalization with respect to poverty, agriculture and government subsidies. The paper will with specification discuss the relationship between trade liberalization and poverty in Argentina, the impacts of trade liberalization on agricultural activities of in Salvador and Costa Rica as examples of low income nations and finally, government support for industries under organization for economic co-operation and development.

Poverty effects from trade liberalization in Argentina

The poor economic performance witnessed in Argentina in the late decades of the nineteenth century led to the idea of liberalizing the economy in an attempt to rescue the country’s economy. Argentina was under threat of adverse economic instability that was characterized by international debts, inflation as well as deficits in balance of payments among others.

One of the effects of the Argentine economic liberalization was the increased rate of unemployment that was witnessed in 1990s. The opening of the country to unrestricted international trade led to influx of importation of goods. The imported goods were relatively cheaper that the locally manufactured goods. This undermined the operations of the domestic factories costing locals their jobs as the domestic production was realized to be more expensive.

The reliance of imported commodities further undermined job creation thereby increasing cases of unemployment. The end result became evident as increased poverty level. The technique used by Barraud and Calfat to analyze this effect of trade liberalization in Argentina involves two steps. The first step is the establishment of the changes that occurred in commodities as well as their prices following the market liberalization.

The second step is the determination of the effects of liberalization on households following the analysis of their revenues and expenditures. The changes in commodity and prices were done on both traded and non traded goods.Measurement of household income was then done as at before and after the implementation of the trade liberalization. These analyses then yielded the measures of poverty and welfare.

The results indicated that there was significant effect of liberalization on the poor. The liberalization policy had effects on both traded and non traded goods. The research indicated that there was a negative effect of liberalization that needed to be addressed in order to solve the unemployment problem. There is however no concrete association between poverty level and the unemployment caused by liberalization (Barraud and Calfat 12).

Impacts of trade liberalization on agriculture in salvador and Costa Rica

According to Gingrich and Garber, the effects of liberalization on the agricultural sector vary from one country to another. In Costa Rica, the liberalization policy was implemented in gradual steps over a decade. The implementation took a broader perspective to include exchange rates, financial policies and restrictions on quantity oftrade were reviewed.

The policy implementation was however rushed in Salvador.Notable differences were observed between the two countries as Costa Rica was identified to be more stable economically and politically. In research conducted by Gingrich and Garber, it was found that the nature of agricultural goods, tradability and intensity in labour, the liberalization policy in trade enhanced exportation of agricultural goods. Liberalization had different effects in the two countries under consideration.

While its effect was positive in CostaRica, Salvador experienced a decline in the agricultural trade balance. The method of analysis, week’s interpretation, is however criticized as wrong for including factors that are not related to trade liberalization (Gingrich and Garber 14).

Government support to industry in organization for economic co-operation and development

Trade liberalization also led to governments’ support to industries. The issue of subsidies is a development whose primary goal was to aid the development of declining industries.

In exploring factors that influence government support to businesses through subsidies, Aydin notes that politics is one of the factors that affects the grants of subsidies as politicians seeks to gain influence. The capital capacity of an industry is also a factor as industries with high assets attracts more subsidies due to their ability to adjust to global competition.

Other factors affecting the allocation of subsidies include unemployment rate, political atmosphere, and exposure of the economy to the global market among others. Aydin however recommended improvement on future research to include relationship between level of subsidies and other expenditures of various governments (Ayidin13).

Conclusion

The exploration of impacts of trade liberalization is an important tool that helps in the identification of features of trade liberalization that needs to be considered by different governments. The investigations into the negative impacts of the policy are a tool that if considered and measures taken by the governments, then economies can be revived and improved.

The various research techniques that have so far been employed to investigate trade liberalization are however not credible enough as they either includes irrelevant factors or fail to explain some. Independent institutions should therefore be established and empowered to effectively look into the subject of trade liberalization.

Works Cited

Aydin,Umut. Promoting industries in the global economy: subsidies in OECD countries. New York,NY:Rutledge, 2007. Print.

Barraud, Ariel &Calfat, German.Poverty Effects from Trade Liberalisation in Argentina. New York,NY:Rutledge, 2008. Print.

Gingrich, Chris & Garber, Jason.Trade liberalization’s impact on Agriculture in low income Countries: a comparison of El Salvador and Costa Rica. USA: Eastern Mennonite University, n.d. Print.

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